The Interaction of Perceived Subjectivity and Pay Transparency on Professional Judgment in a Profit Pool Setting: The Case of Large Law Firms

Abstract

ABSTRACTThis paper examines how the interaction of perceived subjectivity and pay transparency in profit allocation is associated with an important aspect of law partners' professional judgment, namely their tendency to accede to the wishes of their client and fellow partner (labeled hereafter as partner accedence). Based on interviews with 56 corporate law partners working in large Canadian law firms, we find higher partner accedence in a less subjective system than in a more subjective system, but only under no pay transparency. We find that pay transparency (versus no transparency) is associated with increased accedence in a more subjective system, but it is marginally associated with decreased accedence in a less subjective system. In an experiment where we randomly assign MTurk participants to conditions, we replicate the finding that pay transparency (versus no transparency) has a more positive effect on partner accedence as subjectivity level increases.Data Availability: Lawyers participated in the study upon which this paper is based only after signing agreements that strict confidentiality of all data would be maintained by the researchers. As such, we are bound by these confidentiality agreements with individual lawyers interviewed for the study. Experiment data from Amazon Mechanical Turk are available from the authors.JEL Classifications: M12; M40; M52.